A methodology that reflects future shareholder profits in the life insurance business. Embedded value equals the free surplus plus the value of inforce business. Embedded value is hard to compare with different companies since each company determines its own input parameters, for example the level of target surplus.
Similar financial termsPrincipal value
The amount that the issuer of a bond agrees to repay the bondholder at the maturity date. The principal is also referred to redemption value, maturity value, par value or face value.
The amount paid to remaining shareholders in the second stage of a two-tier or partial tender offer.
The value of a company as a whole over and above the sum of the values of each of its parts; the value of organization learning and reputation.
The value at maturity.
Book value per share
The intrinsic value of a company's stock. BVPS is calculated by dividing tangible capital dollar value by the number of outstanding shares of common stock.
Alternative name for par value.
Adjusted present value (APV)
The net present value analysis of an asset if financed solely by equity (present value of un-levered cash flows), plus the present value of any financing decisions (levered cash flows). In other words, the various tax shields provided by the deductibility of interest and the benefits of other investment tax credits are calculated separately. This analysis is often used for highly leveraged transactions such as a leverage buy-out.
A manager who seeks to buy stocks that are at a discount to their "fair value" and sell them at or in excess of that value. Often a value stock is one with a low price to book value ratio.
Refers to when value or credit is given for funds transferred between banks.
In the market for eurodollar deposits and foreign exchange, value date refers to the delivery date of funds traded. Normally it is on spot transactions two days after a transaction is agreed upon and the future date in the case of a forward foreign exchange trade.
Value additivity principal
Prevails when the value of a whole group of assets exactly equals the sum of the values of the individual assets that make up the group of assets. Stated differently, the principle that the net present value of a set of independent projects is just the sum of the net present values of the individual projects.
A value-at-risk (VAR) model is a procedure for estimating the probability of portfolio losses exceeding some specified proportion based on a statistical analysis of historical market price trends, correlations, and volatilities.
Value-added tax (VAT) is a method of indirect taxation whereby a tax is levied at each stage of production on the value added at that specific stage.
The welfare a given investor assigns to an investment with a particular return and risk.
Time value of money
The idea that a dollar today is worth more than a dollar in the future, because the dollar received today can earn interest up until the time the future dollar is received.
Time value of an option
The portion of an option's premium that is based on the amount of time remaining until the expiration date of the option contract, and that the underlying components that determine the value of the option may change during that time. Time value is generally equal to the difference between the premium and the intrinsic value.
Also called investment value, the value of a convertible security without the con-version option.
Also called the normal deviate, the distance of one data point from the mean, divided by the standard deviation of the distribution.
Scrap value of plant and equipment.
Usually refers to the value of a lessor's property at the time the lease expires.
Current cost of replacing the firm's assets.
The attractiveness measured in terms of risk, liquidity, and return of one instrument relative to another, or for a given instrument, of one maturity relative to another.
Price value of a basis point (PVBP)
Also called the dollar value of a basis point, a measure of the change in the price of the bond if the required yield changes by one basis point.
Present value of growth opportunities (PVGO)
The net present value (NPV) of investments the firm is expected to make in the future.
Present value factor
Factor used to calculate an estimate of the present value of an amount to be received in a future period.
The amount of cash today that is equivalent in value to a payment, or to a stream of payments, to be received in the future.
Also called the maturity value or face value, the amount that the issuer agrees to pay at the maturity date.
Original face value
The principal amount of the mortgage as of its issue date.
Net salvage value
The after-tax net cash flow for terminating the project.
Net present value rule
An investment is worth making if it has a positive NPV. Projects with negative NPVs should be rejected.
Net present value of future investments
The present value of the total sum of NPVs expected to result from all of the firm's future investments.
Net present value of growth opportunities
A model valuing a firm in which net present value of new investment opportunities is explicitly examined.
Net present value (NPV)
The present value of the expected future cash flows minus the cost.
Net book value
The current book value of an asset or liability; that is, its original book value net of any accounting adjustments such as depreciation.
Net asset value (NAV)
The value of a fund's investments. For a mutual fund, the net asset value per share usually represents the fund's market price, subject to a possible sales or redemption charge. For a closed end fund, the market price may vary significantly from the net asset value.
Net adjusted present value
The adjusted present value minus the initial cost of an investment.
Market value-weighted index
An index of a group of securities computed by calculating a weighted average of the returns on each security in the index, with the weights proportional to outstanding market value.
Market value ratios
Ratios that relate the market price of the firm's common stock to selected financial statement items.
(a) The price at which a security is trading and could presumably be purchased or sold. (b) The value investors believe a firm is worth; calculated by multiplying the number of shares outstanding by the current market price of a firm's shares.
The amount a policyholder may borrow against a whole life insurance policy at the interest rate specified in the policy.
Net amount that could be realized by selling the assets of a firm after paying the debt.
With respect to convertible bonds, the value the security would have if it were not convertible apart from the conversion option.
A company's book value is its total assets minus intangible assets and liabilities, such as debt. A company's book value might be more or less than its market value.
An amount the insurance company will pay if the policyholder ends a whole life insurance policy.
Also called parity value, the value of a convertible security if it is converted immediately.
Is the amount remaining after a depreciated useful life. It refers to the residual or recoverable value of a depreciated asset. It should be noted that the gross salvage value may be adjusted by a removal or disposal cost. This adjustment would lower the gross salvage value.
The time value component of an option premium.